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An Open Letter To HERO Communities

In the Community
March 08, 2017

The idea behind HERO is simple. We want to help homeowners invest in their homes to save energy or water, or to make their most valuable investment — their home — safer and more resilient to extreme weather. Our company, Renovate America, allows only efficiency-rated products, monitors contractor performance, and stands by homeowners from start to finish. The contractors we work with agree not to be paid until the project is done to the homeowner’s satisfaction. A property’s eligibility is primarily based on equity in the home and the homeowner’s tax and mortgage payment history, and financing is repaid through a new line item on the local property taxes. It’s called PACE, or Property Assessed Clean Energy.

Simple ideas aren’t always simple to implement. Just over five years ago, the first homeowner used HERO financing for an energy-efficient home improvement. Since then, Renovate America has helped 90,000 homeowners make improvements to their homes. We have worked to improve the process for contractors, the accountability to local governments, and most importantly, the experience for every homeowner.

We want you to understand what we’ve learned and done along the way. And that we’re not done yet.

Every year, one in six homeowners replaces a system or product in their home that affects energy consumption. Too often, they don’t choose the product most likely to save energy or water or reduce carbon emissions – a product that can often help pay for itself over time. Or they want to go solar, and need a way to pay for it.

HERO is working to lower energy and water consumption. Last year, the Lawrence Berkeley National Laboratory reported that, in 2014, 46% of financing volume in home improvements that affect energy consumption was made by Renovate America’s HERO program and one Massachusetts government program. HERO homeowners will save an estimated $3.6 billion in lower utility bills and more than 8 billion gallons of water.

The investment research firm Morningstar issued a positive verdict on how PACE is working in the marketplace with a recent report: "Morningstar views PACE as a beneficial program that offers corporations and consumers the opportunity to affordably implement energy-efficiency and renewable- energy upgrades," allowing homeowners to make improvements that "bolster property values and lead to tax and utility savings."

HERO is helping to improve homes. A peer-reviewed study published in the Journal of Structured Finance in 2016 found "the net impact of PACE on resale value of a home, after taking into account the cost of improvements, ranges from $199 to $8,882." That means homeowners recovered at least 100% of the cost when they sold their home. The study compares that to other popular home improvements, such as kitchen and bathrooms, and cites prior studies showing they recover only 58% to 66% of their cost when the home is sold.

HERO is creating local jobs. In five years, we estimate we’ve created more than 18,000 jobs and $3.7 billion in economic impact in the communities we serve.

Here’s how HERO helps. Let’s say it’s 103 degrees outside and your air conditioning has given up. What options do you have in terms of new systems? How do you know which contractors are above board? We created an instantly accessible database of more than a million performance-rated products. That’s for the planet. We set up a first-ever daily interface with the California Contractors State License Board to check contractor licenses. We’ve declined to do business with more than 1,900 contractors based on licensure checks alone. We brought new tech tools to the underwriting system to try to get you and contractors in your home an accurate read on whether you and your home are eligible for HERO financing within minutes.

To help homeowners understand the terms of the financing, we put in place a disclosure form modeled after the federal Consumer Financial Protection Bureau’s "Know-Before-You-Owe" mortgage disclosure. We also require homeowners to do a live, recorded phone call with us 100% of the time before they can sign financing documents – so we can go over the key terms.

For seniors, we ask extra questions and provide additional review of those calls. We have an elder advocate monitoring to help make sure financing and projects only move ahead if homeowners age 65 and up have been clearly communicated their obligation.

We strive to offer more than financing – we strive to offer peace of mind. We offer investigative and dispute resolution services if you’re not happy with the job your contractor did.

When HERO homeowners want to sell or refinance, we’re still here. We have a group called HERO Property Advisors standing by to help you, your agent, and your lender make the most of the energy- or water-saving upgrades and work with lenders.

In 2017, we set new interest rate options. When the new rates are offered by a contractor, they will lower financing costs quite a bit.

We are asking for more oversight. Not what you normally hear a business say. We joined with others in the PACE industry to establish new national standards informed by the U.S. Department of Energy’s best practices for PACE. We’re asking state legislators in California to enact into law many of these requirements, building on the disclosure requirements they made law last year. We are working on how underwriting should include income considerations. We are working with national consumer advocacy organizations to make the case for federal regulation. We’re serious about consumer protection.

We brought big data to home improvement. We brought a new level of data rigor and objective evaluation to our contractors. We stopped doing business with 55 contractors with poor records in the last six months as a result of this new Contractor Quality Scoring system. That’s out of a pool of about 500 contractors active with the program in a given month. Good contractors don’t have a lot of complaints. Those are the ones we help you find. Those who do have complaints, and don’t work to fix them, are suspended or terminated. There’s really nothing else like this in home improvement.

We are aligning our own team to this promise. Like most businesses, we give bonuses based on performance. We’re shifting the focus from volume to quality. We are now tying employee incentive pay directly to our Contractor Quality Scorecard. It’s about creating a pool of home improvement pros who care about happy homeowners. We also brought on new leadership to the teams that work most closely with contractors.

What if we made homeowners the ones who knock on a contractor’s door, instead of the other way around? We’ll be launching a new version of soon, and the idea is to help and inspire people to make the right home improvement that will save the most on utilities and add the most value to their home. We will give homeowners a new digital platform to find the highest-rated contractors in their area, energy-saving ideas and information, and financing options.

If you’ve read this far, you care.

Be assured, we get it. We know the idea of PACE is a good one; success for homeowners lies in how well it’s done.

To that end, the American Council for an Energy Efficient Economy notes in a recent commentary that "the PACE industry is voluntarily adopting more stringent standards than traditional home improvement loans."

With HERO, we only exist in a community because local governments decide to make the power of PACE financing available. We welcome scrutiny, and we want to know what more we can be doing.

Thank you.

JP McNeill